Friday, April 24, 2015

Don't Blame Germany (Not Required)

(This is not required because I think you've heard enough about Greece this semester).

Two huge names in academic international finance, Jeremy Bulow and Kenneth Rogoff, chimed in on Greece with an op-ed in the April 17 issue The Wall Street Journal entitled "Don't Blame Germany for Greece's Profligacy".

In the court of world opinion, a large majority seems to believe that
even if the Greeks may have been a tad fiscally irresponsible, it is
the Germans who have driven Greece into depression through cruel
insistence on austerity and debt repayments.

This populist narrative misses the essence of the problem ...

I would not describe either one of the authors as conservatives. These are firm liberal/progressives saying we shouldn't be sympathetic to the underdog in this case.

Let’s first dispense with the “it’s all German-led austerity” nonsense. ... In 2009, fueled by a three-year jump in government spending to 54% of
gross domestic product from 45%, the Greek government was running a
primary deficit equal to 10% of its GDP, according to IMF estimates.
In other words, new borrowing equaled all principal and interest due,
plus an extra 10% of GDP. When major accounting fraud was reported,
private lending to the Greek government stopped ...

But Greece has already taken advantage of others:

Sober observers realize that further debt write-downs are both desirable
and inevitable. But don’t blame today’s austerity on tough repayment
terms that have never been, and probably never will be, implemented.
Already the EU’s current bailout terms include no principal or net
interest until 2020. Greece has enjoyed a much smoother cushion than
say, the Asian financial crisis countries in the late 1990s. [emphasis added]

And, I think I've gotten across many points this semester whose tone is echoed in the article:

Eurozone leaders would like to portray the Greek crisis as unique, but in many respects it is merely extreme.

In a lot of case, what we need to do is redefine normal to include more unusual behavior than we'd care to.